GAAR clarity & diesel reforms boost markets

Sat, 19 Jan RoundUp

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Global stock markets witnessed a week of gains except a flat closing for Singapore and Germany (both were down by 0.2%). In the US, the stock market indices were at their 5-year high on strong earnings and hopes that a bill will be considered to deal with federal debt limit issue. The limit of debt ceiling may be raised so as to enable US to pay its bills for another 3 months. This would imply more time for the Senate to work out a budget plan, probably a one with spending cuts which is not too harsh on the country's economy. The Dow Jones was up by 1.2% over last week.

The Indian stock markets ended the week higher by 1.9%. The hike of diesel prices (up by 45 paise per litre) brought buying interest in oil & gas stocks specifically which jumped by almost 9% during the week. Earlier in the week, Finance Minister's decision to defer implementation of General Anti-Avoidance Rules (GAAR) from April 2014 to 2016 too boosted investor sentiments.

Amongst, the other markets too there was optimism all around with only Singapore and Germany reporting minimal losses (down by 0.2%). China (up by 3.3%) was the biggest gainer.

Source: Yahoo Finance

Amongst sectoral indices, oil & gas were the top gainers (up by 8.9%) after Indian government allowed oil companies to raise prices of diesel in a phased manner to recover their losses of Rs 9.6 per litre. Auto (down by 2.9%) and metal (down by 1.4%) were among top losers of the week.

Source: BSE

Now let us discuss some of the economic developments during the week gone by. The Indian government has taken first step towards the deregulation of diesel by allowing oil companies to raise diesel prices in small amounts. An announcement to this effect was made yesterday by Oil and Natural Gas minister Mr Veerappa Moily. The companies will be allowed to raise diesel prices from time to time in small quantum till the time they are able to recover their losses amounting to Rs 9.6 per litre. Post the announcement, oil companies raised diesel price by 45 paise and intend to raise the prices of diesel by 50 paise per litre every month. We may note that this is in line with the suggestions of the Kelkar committee which advised total decontrol of diesel pricing.

Now let us take a look at few corporate events that unfolded during the week. FMCG companies are raising prices of personal care and household products. The price hikes in the range of 5-15% are being affected to deal with low off take of goods and protect margins. HUL hiked prices of soap brands Lux & Rexona by 11% and 16%, respectively. The FMCG major also upped the price of its Fair & Lovely skin cream by 13%. Procter & Gamble raised the prices of Head & Shoulders shampoo and Ariel detergent by 5% each. Colgate increased the prices of Max Fresh & Active salt toothpastes by 5% and 13.5%, respectively. We may note here that these price-hikes have been affected despite softening price of commodities such as palm oil and coconut oil.

The earnings season continued with companies like Axis Bank, Bajaj Auto, Yes Bank, Hero Motocorp and Wipro declaring their results for quarter ended December 2012.

Axis Bank declared the results for the third quarter and first nine months of financial year 2012-13 (9mFY13). The bank has reported 19% YoY growth in net interest income and 22% YoY growth in net profits for the nine month period. Net interest income grew by 19% YoY during 9mFY13 on the back of 21% YoY growth in advances. The net interest margins (NIM), however, slipped to 3.6% in 9mFY13 from 3.8% in 9mFY12 due to fall in yields over the past two quarters. Axis Bank's net profits grew by 22% YoY in 9mFY13 despite rise in provisions and slower growth in fees (15% YoY). Net NPAs were stable at 0.3% of advances at the end of 9mFY13, gross NPAs at 1.1% of advances.

India's second largest two-wheeler manufacturer Bajaj Auto has announced its financial results for the quarter ended December 2012 (3QFY13). Net operating revenue during the quarter stood at Rs 54,127.1 m, higher by 8.6% year-on-year (YoY). The company reported volume growth of about 5% during 3QFY13 with sales of about 1.12 m units. Operating profits rose by 2.8% YoY during the quarter as operating margins declined from 19.7% in 3QFY12 to 18.7% in 3QFY13. At the bottomline level, net profits stood at Rs 8,187.4 m during the period, a figure which is higher by 3% YoY.

IT major Wipro too declared its third quarter results for financial year 2012-13 (3QFY13). The company witnessed 2.9% QoQ growth in revenues and 6.6% QoQ growth in net profits. The IT Services revenues (78% of total revenue in rupee terms) witnessed a growth of 2.4% QoQ in US$ terms. EBITDA margin declined by 0.3% QoQ to 19.6% during the quarter as compared to 19.9% in previous quarter (ending September 2012). That was mainly due to deterioration in the gross margin by 0.23%. Growth in net profits was higher than the growth in operating profits because of a 349% rise in gains from exchange difference and a fall in effective tax rate The latter declined by 2% QoQ to 21.9% during the quarter. The technology company has declared an interim dividend of Rs 2 per share (dividend yield of 0.5%).

Movers and shakers during the week

Company	11-Jan-12	18-Jan-12	Change	52-wk High/Low
Top gainers during the week (BSE-A Group)
ONGC	292	338	15.6%	354/240
NTPC	152	164	7.7%	190/139
Bharti Airtel	325	349	7.4%	401/239
Relaince Industries	839	899	7.1%	903/671
GAIL	364	384	5.5%	401/303
Top losers during the week (BSE-A Group)
M&M	941	886	-5.9%	975/622
Wipro	420	397	-5.3%	453/326
Hero Motocorp	1,835	1,767	-3.7%	2279/1720
Sun Pharma	739	713	-3.5%	776/511
Hindalco	127	123	-3.4%	165/100

Data Source: Equitymaster
In some other news, India's largest two-wheeler manufacturer Hero MotoCorp Ltd will invest Rs 9.5 bn in Rajasthan. The company will invest this amount to commission its fourth production unit, a global parts centre (GPC) and an integrated state-of-the-art research & development (R&D) facility in the state. While the two-wheeler manufacturing unit would be set up on a 47-acre site at Neemrana at an investment of Rs 4 bn, the GPC would come up at the same location at an investment of Rs 1.5 bn. The new manufacturing facility would have capacity to roll out 750,000 units a year. Besides, the company has earmarked an investment of Rs 4 bn to set up an integrated R&D centre at Kukas near Jaipur. As per the company management, both the factory and the parts centre will become operational by the end of FY14.

The Indian government continued its reforms with the announcement of allowing oil companies to raise prices of diesel to recover the losses that they incur on the fuel. Although, this has fuelled fears of increasing inflation, the government now seems determined to deal with the issue of fiscal deficit. All eyes are now set on Reserve Bank of India (RBI) monetary review on January 29, 2013 as to whether the central bank will reduce interest rates or not.